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Barclays Settles Libor Probes

Bank will pay $453 million; CEO Diamond and other executives to forgo bonuses.

Barclays Plc was fined 290 million pounds ($453.2 million), the largest penalties ever imposed by regulators in the U.S. and U.K., after admitting it submitted false London and euro interbank offered rates.

Chief Executive Officer Robert Diamond and three lieutenants will forgo their bonuses as a result, Britain’s second-biggest bank by assets said in a statement today. Derivatives traders requested the false submissions in the Libor and Euribor setting process, as they were “motivated by profit and sought to benefit Barclays’ trading positions,” Britain’s Financial Services Authority said.

The settlements with the FSA, the U.S. Commodities Futures Trading Commission and U.S. Department of Justice are the first in an international investigation into whether banks tried to manipulate Libor, the benchmark rate for $360 trillion of securities, to hide their true cost of borrowing. Citigroup Inc., Royal Bank of Scotland Group Plc, UBS AG, ICAP Plc, Lloyds Banking Group Plc and Deutsche Bank AG are among firms that are being probed by regulators worldwide into how Libor is set.

“Others will follow suit,” said Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics. “That the company settled and the top leadership team forgoes their bonuses sets the right tone.”

Barclays is assisting with the ongoing investigation into other finance firms and individuals, and was the first to provide “extensive and meaningful cooperation” to the U.S. government, the Justice Department said.

Barclays tried to influence other banks’ Euribor submissions and reduced their Libor submissions during the financial crisis “as a result of senior management’s concerns over negative media comment,” the FSA said. The breaches included “a significant number of employees and occurred over a number of years,” the regulator said.

“The events which gave rise to today’s resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business,” Diamond, 60, said in the statement.

The FSA’s 59.5 million-pound fine is the British regulator’s largest ever. The CFTC is imposing a $200 million penalty, and the DOJ is fining Barclays $160 million.

“Libor and Euribor are critically important benchmark interest rates,” said Lanny A. Breuer, assistant attorney general of the Justice Department’s Criminal Division. “Because mortgages, student loans, financial derivatives, and other financial products rely on Libor and Euribor as reference rates, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide.”

Daily Requests

Barclays traders in New York, London and Tokyo attempted to manipulate rates to benefit their trading positions in swaps and futures that were tied to the rates, according to the CFTC. Traders at Barclays made the requests regularly and sometimes daily from mid-2005 through 2007 and sometimes later until 2009, the agency said in a statement.

“Banks that contribute information to those benchmarks must do so honestly,” David Meister, the CFTC’s director of enforcement, said in a statement. “When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports that result from senior management orders to lower submissions to guard the bank’s reputation, the integrity of benchmark interest rates is undermined.”

Senior Barclays managers told staff to submit artificially low rates to Libor from August 2007 until early 2009 to boost the bank’s financial condition, according to the CFTC.

“We didn’t say they succeeded in it,” Bart Chilton, a Democrat commissioner, said in an interview on Bloomberg Television, referring to the attempted manipulation.

Traders at Barclays also coordinated and abetted with traders at other banks to manipulate Euribor, including affecting rates on specific dates when derivatives contracts are settled or reset, according to the CFTC.

The CFTC required Barclays to put measures in place to ensure the bank’s transactions, subject to certain adjustments, are given the most weight in determining Barclays Libor submissions. Barclays must put up firewalls between traders and the employees who make the submissions and retain documents and communications about the rates they reports, the CFTC said.

Libor Survey

Libor is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. Lenders are asked how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and Swiss francs. After a set number of quotes are excluded, those remaining are averaged and published for each currency by the BBA before noon.

Employees responsible for Libor submissions have said in interviews with Bloomberg News they regularly discussed where to set the measure with traders sitting near them, interdealer brokers and counterparts at rival banks. The talks became common practice after money markets froze in 2007, they said, making it difficult for individual bankers to gauge the cost of borrowing from other lenders.

Regulators are focusing on the lack of so-called Chinese walls between traders and employees making interest-rate submissions on behalf of their banks, and whether the banks’ proprietary trading desks exploited the information they had about the direction of Libor to trade interest-rate derivatives.

Barclays received the FSA’s standard 30 percent discount for settling early. The FSA’s biggest fine to date was the 33 million pounds it levied on a unit of JPMorgan Chase & Co. in 2010 over a failure to segregate client money.

As well as Diamond, Barclays said Chief Operating Officer Jerry del Missier, Finance Director Chris Lucas and corporate and investment banking chief Rich Ricci are also forgoing bonuses this year. They had already agreed to cut their deferred bonuses after investors opposed the size of their pay.

Shares of Barclays stayed higher after the announcement and were up 1 percent to 194.45 pence as of 2:36 p.m. in London. They are up 10 percent so far this year.

“The fine will be seen as a one-off and getting a piece of uncertainty out of the way,” said Simon Willis, an analyst at Daniel Stewart Securities Plc in London.

Diamond got as much as 6.3 million pounds in salary, bonuses and stock awards for 2011 as well as a 5.75 million-pound contribution toward his personal tax bill.

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